As I write this the DOW futures are down over 1,200 points and stopped trading due to a limit down halt. The SPY ETF is poised at the moment for a 6% gap down opening. The price of oil was down over 30% last night following a Saudi announcement in response to Putin that they would begin a price war with Russia. That extra volatility in oil no doubt is helping to encourage even more volatility in the US stock market. And of course the news that Italy has closed down 1/3 of its most populated areas does not inspire confidence in the global economy.
Sunday morning a former Trump health official claimed that the US would have to shut down travel in several cities and states in a few weeks for a two or three months if the virus continues to spread.
US Treasury bonds are down again with the 10-year bond now below 0.40.
Gold is up a bit.
Well I guess it’s going to be a sure thing now that we’ll get another round of rate cuts this month from the Federal Reserve.
The big question now is can we get a double bottom? As I showed in the video I did Saturday the DOW can go through the low of the other week on an intraday basis and then rally to still create a double bottom.
But in my years of trading this is a day almost unlike any other in which the risks of the selling getting totally out of control are high.
That day before was not the 2008 crash people remember and talk about. In reality that was actually an orderly event. It did not involve massive one or two day drops, but played out over ten weeks.
The day in which the market almost fell into an instant collapse was the opening day following the MLK Holiday of 2018. The futures were down much like they are now and then the Fed stepped in and cut rates by 3/4 of a point to force the market higher before the market even opened.
Now though with the Fed rates so low it cannot be certain that the market would react in a similar manner. They did not do so last week.
Perhaps the opening after 9/11 could be seen as the type of 1-3 day big drop I fear could happen if the market does not double bottom today.
The other week on Thursday when the DOW fell over 15% from its recent high it had a day that culminated in margin selling. The market attempted to rally in the afternoon and then collapsed on the close. That is what margin day selling days look like and there were several days like that during the Fall 2008 collapse.
It is that type of action I fear could happen today to lead to even bigger selling unless the market bottoms today. If that were to happen I’d look for another 10-15% drop from here to play out. The type of price action would likely be similar to what gold did in April 2013 when it fell through $1550.
One positive bit is that at the moment oil is down off of its lows. So it has been ticking up from its low of last night. I’d like to see the US stock market ETF’s do the same going into the open to have some positive sign of hope before the trading day begin.
I cannot predict what is going to happen. However, this stock market volatility will not last forever. It is helping gold today, as gold is up in pre-market action.
Gold is not simply going up because the stock market is going down. In fact as I noted several times last year and in January the action in gold has been more closely correlated in the past twelve months with what is happening in the bond market than with the S&P 500 or the US dollar.
The video I did Saturday explains why this is so important and will simply mean higher gold prices now for the years to come. If you missed it you can find it here:
The masses are not in mining stocks or gold. I just looked at my Robinhood Account. The only reason I have it is to see the number of people that own various positions. They show that information and it is interesting.
There are now over 10 million Robinhood Accounts.
Only 15,004 people own gold metals ETF GLD.
Meanwhile 7,057 own GDX.
There are the two most actively traded ETF for gold and mining stocks.
So out of 10 million people Robinhood Traders that is ALL that is in those ETF’s.
The masses are not in, but they can’t buy today.
One question I have been getting from people is why are gold stocks not soaring yet? Even though Newmont mining went up to new 52-week highs last week people are thinking that gold stocks should be completely soaring with gold going up like this.
The reason they have not yet is very simple.
It is the stock market volatility.
Many people are fully invested in the stock market and are basically being trapped by this market action. Big gap downs like this morning and sudden 15% plunges from a high in a week like we saw two weeks ago freezes people like deer caught in the headlights.
It makes people feel like they do not know what to do and makes them scared to buy anything. Should they sell? Should they hold and hope?
In normal markets people are able to buy into new stocks and good ideas, but when times like this happen most people feel to trapped to do anything.
Even though gold stocks and silver stocks are beating the market and gold is rising to act as a necessary safe haven the masses are not in a position to be able to buy them until they free their minds and perhaps their money up to make a trade.
They will start to buy gold stocks when this current market drops end and they look to see what is beating the market now or after they sell and look for a new way to make back the money they have lost.
There will be a time when the Robinhood type of trader will look at mining stocks the same way they have looked at dope stocks like ACB and stocks like TSLA in the past twelve months and they will then chase them up at any price.
I did a podcast last night with Carmine Savastano about the coronavirus situation. To listen to it go here: